UPTEC W 10024 Examensarbete 30 hp Juni 2010
Corporate social responsibility issues management at Vattenfall AB
- A study of risks related to technology, value chains, and market
Stina Nylander
Abstract
Corporate social responsibility issues management at Vattenfall AB - A study of technology, value chains and market
Stina Nylander
As one of Europe’s largest-producing actors in the energy sector with a wide energy mix, Vattenfall has a great responsibility to contribute to sustainable development of society. To do so, economical, environmental and social aspects need to be balanced in a responsible way.
This is done through acting social responsible or in other terms, addressing corporate social responsibility (CSR) in the company’s business activities. Electricity and heat constitute one of the prerequisites for a modern society. However, it has always been a highly debated industry due to its inevitable impact on the environment and society. This makes it crucial for Vattenfall and its operations to act as responsible as possible and listen to the stakeholders and take their expectations into account in the business decisions process. Vattenfall has a long history of being criticised for its activities by NGOs and media. However, Vattenfall´s main task is to deliver electricity and heat to the society, which means that Vattenfall must continue to deliver secure energy supply to its markets, but with as little negative impact on the
environment and society as possible.
Vattenfall is through its operations, its value chain, its use of technology and the markets on which it operates, exposed to risks associated with the areas human rights, labour,
environment and anti-corruption. These “CSR risks”can harm the reputation, brand and image if they are not managed in a proactive and effective way. In order to manage CSR risks and emerging CSR issues, the company needs to catch and respond quickly to new trends and expectations raised by opinion formers, which often are expressed through the media and the Internet. The aim of this study is to provide Vattenfall with a tool to do so. Through
identifying the main CSR risks related to its operations, awareness about Vattenfall’s vulnerability areas are created. The result shows that the largest CSR risks for Vattenfall are technology related, i.e., connected to the fuels used in Vattenfall’s power plants and their value chain. This knowledge can be used when addressing CSR in the organization.
Still, a direct solution to manage CSR risks and emerging CSR issue is needed. The second purpose of this study is to propose a process for a CSR issues management at Vattenfall. The aim of such an issues management is to provide the company with a tool to identify, analyse and manage emerging issues. A CSR issues management will provide Vattenfall with a tool to respond to emerging issues before they become public knowledge. It should scan and collect external and internal information, identify relevant information for Vattenfall, monitor ongoing and emerging CSR issues/concerns/debates and report to relevant functions in the Vattenfall organization.
Key words: Corporate social responsibility (CSR), CSR issues management, CSR risks, CSR issues, stakeholder expectations, value chain, UN Global Compact, human rights, labour practices, environment, anti-corruption, sustainable development.
Department of Earth Sciences, Air, Water and Landscape Sciences, Uppsala University, Earth Science Centre, Villavägen 16, SE-752 36 Uppsala, Sweden
ISSN 1401-5765
Referat
CSR-omvärldsbevakning på Vattenfall AB
–En studie om teknik, värdekedjor och marknader Stina Nylander
Som en av Europas största aktörer i den teknikintensiva energisektorn med ett brett utbud av energilösningar, har Vattenfall ett stort ansvar att bidra till hållbar utveckling av samhället.
För att lyckas med detta, måste ekonomi, miljö and sociala aspekter balanseras på ett ansvarsfullt vis. Detta kan uppnås genom att agera socialt ansvarsfullt, vilket innebär att applicera ansvarsfullt företagande (CSR) på företagets verksamhet. Elektricitet och värme utgör förutsättningarna för ett modernt samhälle. Energi har alltid varit en mycket debatterad industrisektor p.g.a. dess ofrånkomliga påverkan på miljön och samhället. Detta gör det mycket viktigt för Vattenfall och dess verksamhet att agera så ansvarsfullt som möjligt samt att lyssna på sina intressenters förväntningar och tillgodogöra sig dessa i beslutsprocesser.
Vattenfall har en lång historia av att vara kritiserade av sina intressenter, framförallt av NGOs och media. Men det är viktigt att komma ihåg att Vattenfalls huvuduppgift är att leverera elektricitet och värme till samhället, samtidigt ska detta göras tillsammans med avvägning om acceptabel påverkan på miljö och pris.
Vattenfall är genom sin verksamhet, sin värdekedja, sin teknikanvändning och sina marknader utsatt för risker inom områdena mänskliga rättigheter, miljö, arbetsrätt och anti-korruption.
Dessa “CSR-risker”kan skada Vattenfalls rykte, varumärke och image om de inte hanteras på ett förebyggande och effektivt sätt. För att hantera CSR-risker och uppkommande CSR- frågor, måste företaget tidigt fånga upp och svara på nya trender och förväntningar startade av opinionsbildare, som ofta uttrycks genom media och via internet. Syftet med den här studien är att förse Vattenfall med ett verktyg för att göra detta. Genom att identifiera de övergripande CSR-riskerna för Vattenfalls verksamhet, bygger man upp en medvetenhet om företagets sårbara områden. Resultaten visar att Vattenfalls största CSR-risk är teknikrelaterad; kopplad till de bränslen som används. Denna kunskap kan användas när man applicerar CSR i
organisationen. Det behövs även ett direkt verktyg för att hantera CSR-risker, uppkommande CSR-frågor och kritik som sprids via olika kommunikationsforum som t.ex. media och NGOs. För att hantera detta, ska en process föreslås för en CSR-omvärldsbevakning för Vattenfall. Målet med en sådan omvärldsbevakning är att förse företaget med ett verktyg för att identifiera, analysera och hantera uppkommande CSR-frågor. En CSR-omvärldsbevakning skulle förse Vattenfall med ett verktyg för att svara på uppkommande CSR-frågor innan de blir allmänt kända. Den skulle skanna och samla in extern och intern information, identifiera relevant information för Vattenfall, övervaka pågående och uppkommande CSR-
frågor/debatter/händelser och rapportera till relevanta funktioner inom Vattenfall.
Nyckel ord: Ansvarsfullt företagande (CSR), CSR-omvärldsbevakning, CSR-risker, CSR- frågor, intressentförväntningar, värdekedja, UN Global Compact, mänskliga rättigheter, arbetsrätt, miljö, korruption, hållbarhet.
Institutionen för geovetenskaper, Luft-, vatten- och landskapslära, Uppsala universitet, Geocentrum, Villavägen 16, SE-752 36 Uppsala, Sverige
ISSN 1401-5765
Preface
This engineering master thesis was performed as a part of my master in Aquatic and
Environmental Engineering Programme, at Uppsala University. The course responds to 30 c and was conducted at Vattenfall AB, Group communications. My tutor Michelle von
Gyllenpalm at Vattenfall AB has been a great support to me through out this project, without her I would not have achieved my goals. I would also like to thank my subject reviewer at Uppsala University, Lars-Christer Lundin at the Department of Earth Sciences, Program for Air-, Water and Landscape Sciences. In addition, I would like to express my gratitude to all of you who have supported my work through interviews, advices and feedback.
Stina Nylander Stockholm 2010
Copyright © Stina Nylander och Institutionen för geovetenskaper, Luft-, vatten- och landskapslära, Uppsala universitet
UPTEC W 10 024, ISSN 1401-5765
Tryckt hos Institutionen för geovetenskaper, Geotryckeriet, Uppsala universitet, Uppsala 2010.
Populärvetenskaplig sammanfattning
Allt fler företag inser värdet av att bidra till hållbar utveckling av samhället genom att applicera socialt ansvarstagande I verksamheten (ISO/DIS 26000, 2010). För att lyckas med detta måste ekonomiska, miljömässiga samt sociala aspekter balanseras på ett ansvarsfullt vis.
De senaste åren har socialt ansvarstagande fokuserat på affärsverksamheter vilket har resulterat I att benämningen CSR (corporate social responsibility) har blivit allt vanligare (ISO/DIS 26000, 2010), ett uttryck som även används i denna studie.
Genom sin verksamhet, sin värdekedja, sin teknik, och sina marknader är företag utsatt för risker inom områdena mänskliga rättigheter arbetsrätt, miljö, och anti-korruption.
Dessa “CSR-risker”kan komma att skada företagets rykte, varumärke och image, vilket i sin tur kan leda till negative konsekvenser för företagets verksamhet (Kytle, 2005). En CSR-risk är definierad som en händelse eller situation som kan påverka företagets förmåga att uppnå sina mål, behålla ett gott rykte samt möta sina intressenters förväntningar (Reyner, 2003).
För att kunna hantera CSR-risker på ett förebyggande sätt är det ytterst viktigt att förstå vilka slags risker som företaget är utsatt för. Detta kan åstadkommas genom att identifiera
företagets sårbara områden och därmed skapa en förståelse för företagets svaga punkter.
Syftet med den här studien är att bidra till en sådan förståelse samt att rekommendera en process för CSR-omvärldsbevakning på Vattenfall som fångar upp CSR-relaterade risker och frågor som kan komma att påverka företagets verksamhet. Genom att göra detta kan
Vattenfall arbeta för att förbättra sin verksamhet och sina rutiner för att förebygga negativ påverkan på företaget.
Den första delen av studien identifierar de övergripande CSR-riskerna för Vattenfalls bränslen samt geografiska områden inom områdena mänskliga rättigheter, arbetsrätt, miljö, och anti- korruption. Studien visar att de största CSR-riskerna är relaterade till bränslena och deras leverantörskedja, dvs till den teknik man använder för att producera energi. Uran, kol och biomassa upphandlas från länder spridda över hela världen. I vissa av dessa länder råder en låg standard för mänskliga rättigheter, arbetsrätt, miljö, och anti-korruption. Dessutom har gruvindustrin en lång historia av att bli kritiserad för sin negativa påverkan på samhället och miljön. Detta gör det mycket viktigt för Vattenfall att granska och ställa höga krav på sina bränsleleverantörer.
Studien visade även att de övergripande CSR-riskerna kopplade till Vattenfalls geografiska områden1generellt sätt är låga. Trots detta är risken för kritik från intressenter som kan skada Vattenfalls verksamhet stor eftersom förväntningarna på företaget är stor. På
hemmamarknaderna kan små misstag leda till stora konsekvenser för företaget. Därmed är det av stor vikt att ha en god relation till samt ett gott rykte bland intressenterna på sina
hemmamarknader.
Den andra delen av studien föreslår en process för CSR-omvärldsbevakning på Vattenfall.
Den föreslagna processen inkluderar:
Övervakning och insamling av information/nyheter/publikationer kopplade till Vattenfalls verksamhet från externa och interna källor
Identifiering av CSR-frågor/risker kopplade till Vattenfalls organisation
Analys och riskrankning av identifierade CSR-frågor
Aktiv/passiv övervakning av identifierade CSR-frågor
Rapportering till CSR manager samt till berörda funktioner inom Vattenfall
1Sverige, Danmark, Finland, Tyskland, Polen, Belgien, Nederländerna och Storbritannien.
Identifiering och övervakning Vattenfalls tio mest kritiska leverantörer.
En annan viktig del av processen är intressentdialoger, både på regional och också global nivå. Dialogerna utgör en extern informationskälla och bör resultera i en kartläggning av viktiga CSR-fågor för Vattenfall som kan användas som ett kommunikationsverktyg för CSR- frågor samt som väsentlighetskälla till Vattenfalls årliga hållbarhetsredovisning.
En av de grundläggande förutsättningarna för den föreslagna processen för CSR-
omvärldsbevakning är samarbetet med övriga funktioner inom Vattenfall som på ett eller annat vis jobbar med risker och/eller omvärldsbevakning. Tydliga och strukturerade kanaler till dessa funktioner bör arbetas fram.
Table of Content
1. Introduction ... 1
1.1. CSR risks and issues ... 1
1.2. CSR Issues management ... 2
1.3. Vattenfall ... 3
1.4. Purpose ... 4
2. Conceptual framework ... 5
2.1. Stakeholder identification and engagement ... 5
2.1.1. How globalization has affected stakeholders ... 7
2.1.2. An organization’s sphere of influence... 7
2.2. Risks, crisis and issues ... 8
2.4. The link between CSR and risk management ... 10
2.3. The Global Scene ... 10
2.3.1. UN Global Compact... 10
2.3.2. OECD- Organisation for economic co-operation and development ... 11
2.3.3. PACI - Partnering Against Corruption Initiative ... 12
3. Method and Material... 12
3.1. Global commitments by Vattenfall ... 13
3.1.1. UN Global Compact... 13
3.1.2. OECD- Partnering Against Corruption Initiative... 14
3.1.3. PACI - Partnering Against Corruption Initiative ... 14
3.2. CSR topics... 14
3.2.1. Human rights ... 14
3.2.2. Labour practices ... 15
3.2.3. Environment ... 15
3.1.4. Anti-corruption... 16
3.3. Corporate Social Responsibility at Vattenfall ... 16
3.4. Mapping of functions at Vattenfall that manage risks and issues ... 18
3.4.1. ERM- Enterprise risk management at Vattenfall ... 18
3.4.2. ICM- Incidents & Crisis Management ... 19
3.4.3. Media Relations... 20
3.4.4. Public Affairs ... 20
3.4.5. CSR network ... 20
3.4.6. Group Environment... 21
3.5. Benchmark for Issues Management ... 21
3.5.1. Skanska... 21
3.5.2. Issues management at Nuon ... 24
3.6. Fuels ... 25
3.6.1. Uranium... 25
3.6.2. Coal ... 25
3.6.3. Biomass ... 26
3.7. Vattenfall’s geographic markets... 26
4. Critical voices against CSR and Vattenfall ... 27
4. Results ... 28
4.1. CSR risks related to Vattenfall’s operations ... 28
4.1.2. CSR Country risk assessment ... 28
4.1.3. Risk for corruption at Vattenfall: Interview with Örjan Berner, former president of transparency international ... 28
4.1.4. CSR risks related to Vattenfall’s fuels ... 29
4.1.5. Case Study: Does biomass has an impact on the climate? ... 33
4.1.6. CSR risks related to the countries where Vattenfall purchase uranium and coal .. 35
4.1.7. CSR risks related to Vattenfall’s geographical markets... 36
4.1.7. CSR risk related to the supply chain ... 40
4.2. The structure for a CSR issues management process at Vattenfall ... 41
4.2.1. Recommendation on process for CSR Issues Management ... 41
5. Discussion and conclusions ... 47
5.1. Next steps ... 48
6. Bibliography... 49
6.1. Publications ... 49
6.2. Internet sources ... 49
6.3. Company documents ... 51
6.4. Personal Communication ... 51
Vattenfall ... 51
Other... 51
Appendix... 52 CSR risks related to the countries where Vattenfall purchase uranium and coal...Fel!
Bokmärket är inte definierat.53
1. Introduction
More and more companies are recognizing the need and the benefits of being socially
responsible with the aim to contribute to sustainable development of society (ISO/DIS 26000, 2010). To do so, economical, environmental and social aspects need to be balanced in a responsible way. During the last years, social responsibility has focused on businesses, which have made the term corporate social responsibility (CSR) more widespread than social responsibility. It represents ethical and transparent behaviour that takes stakeholder’s interest in account and follows international laws and norms (ISO/DIS 26000, 2010). The draft for the International Standard ISO 26000 provides the underlying principles of social responsibility, the core subjects and issues pertaining to social responsibility2.
There are many different definitions of CSR. The definition set by the European Union is “A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”(European Commission, 2010). According to the definition of the United Nations (1987), CSR is the overall contribution of business to sustainable development, being defined as: “… a pattern of resource use that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for future generations.”Other international forum, such as the United Nations Conference on Environment and Development in 1992 and the World Summit on Sustainable Development in 2002, have highlighted the importance of these objectives over the years since 1987.
In July 2000, the leadership initiative UN Global Compact was launched as a policy platform and a practical framework for companies that are committed to sustainability and responsible business practice (United Nations Global Compact, 2010). The purpose of the initiative is to align business operations and strategies everywhere with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption. These ten principles constitute an international framework for CSR performance and are often used as a tool when addressing CSR.
1.1. CSR risks and issues
Companies are through their operations, their value chain, their technology and the markets on which they operate, exposed to risks associated with the areas human rights, labour, environment and anti-corruption. These “CSR risks”can harm the reputation, brand and image of the company, which can lead to financial loss through consumer boycotts and
business-opportunity loss (Kytle, 2005). A risk is “an event or situation which could adversely or beneficially affect the business’ability to achieve its objectives, maintain a good reputation and meet stakeholder expectations”(Reyner, 2003). A CSR risk occurs when there is a gap between the expectations from society and the company business behaviour (Zaman, 2004 ).
A company needs to be sensitive to the shift in expectations of its stakeholders to be able to anticipate CSR risks. Expectations are usually raised by opinion influencers, and expressed through the media and the Internet. If a company catches new trends fast and responds
quickly, it is more likely to manage CSR risks and emerging CSR issues (Zaman, 2004). This report follows Heath and Palenchar (2008) and defines an issue as a point of discussion or dispute that is worthy of attention when it can have an impact on the organization.
2The ISO 26000 will be officially published during 2010.
1.2. CSR Issues management
According to a survey performed by a United States public opinion survey, 50% of the consumers in the US have boycotted a company at some time due to bad customer service, poor quality products or environmentally unsound actions (Regester and Larkin, 2005). They objected to corporations whose values were not compliant with theirs. There are many examples of such consumer boycotts, but one of the most extensive and longest running boycotts were against Nestlé (Regester and Larkin, 2005):
In the 1970s, when Nestlé was accused of selling infant formula products in developing countries at prices that could not be afforded and where water was virtually non-existent, they chose to ignore the allegations of
irresponsible behaviour and greed. This resulted in the formation of the non- profit organization Baby Milk Action. Baby Milk Action became a powerful and critical force against the company, which generated massive negative media coverage and succeeded in harming the company through consumer boycotts and through significant reputational and commercial damage. This was a result of Nestlé’s refuse to discuss the issue with the stakeholders or have a public debate on the issue (Regester and Larkin, 2005). When they finally realized their mistake it was already too late to repair the damage.
This case shows the importance of an issues management that catches upcoming CSR issues early and manages them in an open and transparent way. It also points to the need to couple marketing to the actual technological level of the market, in this case the drinking water availability. How an issue is managed can mean the difference between a major crisis and a manageable situation (Regester and Larkin, 2005)
The term issues management was coined in the 1970s, which was the time when stakeholders started to question the legitimacy of companies and their behaviour (Heath and Palenchar, 2008). Issues such as health and safety, social responsibility, environment, and labour practices were discussed in media, among activist groups and of government agency heads who pressed for change in business activities and policies (Heath and Palenchar, 2008). Issues management started as an attempt to define strategies that companies needed in order to counter the efforts of activist groups that were putting pressure on legislators for stricter controls of business activity. Issues management developed and companies started to
implement it as a tool to deal with their critics (Regester and Larkin, 2005). W. Howard Chase (cited by Heath and Palenchar, 2008) defines issues management as a tool that companies could use to:
identify,
analyse, and
manage emerging issues.
An important part of identifying issues is to engage with stakeholders and listen to their expectations on the company.
Issues management gives the company a chance to respond to emerging issues before they become public knowledge. Issues management should look for and take actions on emerging issues and thereby help organizations to be proactive, instead of merely reactive (Heath and Palenchar, 2008). Even though many emerging issues never develop into real issues that draw public attention, a company must be committed to avoid the unexpected and respond quickly when it happens. It is important to recognize that most issues cannot be solved by
communication alone, often real improvement of CSR standards is needed (Heath and
Palenchar, 2008). One proactive issue response is to bring the company to a higher CSR standard and thereby minimize the company’s vulnerability areas.
To have an effective process for CSR issues management that identifies, analyses, and
monitors, emerging CSR issues constitutes an important part in a company’s CSR work and is an important tool to manage CSR risks (Heath and Palenchar, 2008).
1.3. Vattenfall
Vattenfall is an energy company that is wholly owned by the Swedish state. It generates electricity, produces heat and supplies energy to several million customers in the Nordic countries and northern Europe. It has a broad energymix that includes fossil power, nuclear power, hydropower, windpower, and biomass. Vattenfall’s vision is to be a leading European energy company and its core values are represented by openness, accountability
and effectiveness.
Being a producing company in the energy sector, technical aspects are always the core of the company’s activities. Vattenfall’s core business is to generate electricity and heat to the society in a responsible manner. This also represents Vattenfall’s main contribution to sustainable development. When working with CSR at Vattenfall, it is very important to understand the industry, its technical base, the company’s role and impact on society as well as the product themselves. The main objective is to minimize its own as well as the value chain’s negative impact on society and environment. For example, all fuels used by Vattenfall have a negative impact on the environment. The challenge is to secure that the fuels are produced and used with as little negative environmental impact as possible (Vattenfall, 2010).
Stakeholder expectations have played an important role in the development of Vattenfall and its technical operations (Gyllenpalm, pers.com., 2010). Looking at the history of Vattenfall, one can see how the company’s operations changes due to these expectations. What is considered as responsible and sustainable operations change over time. For example, during the 70s, the question on hydropower’s impacts on the environment was raised. This resulted in Vattenfall’s investments in nuclear power. Ironically, the public opinion and the
stakeholder expectations changed during the late 80s after the Chernobyl accident, and Vattenfall was forced to plan the phasing out of nuclear power. However, the expectations changed again. Today, Vattenfall’s stakeholders in Sweden consider nuclear power as a relatively sustainable energy source and it once again constitutes an important component for the future energy generation in Sweden. Coal however, has now become the large concern. As a result, the investments in renewable energy have increased as well as the investments in new technology such as Carbon Capture and Storage (CCS)3. During the last decade, the
stakeholder expectations have started to involve the value chain, especially the fuel value chain. This has resulted in Vattenfall’s extensive supplier evaluation routines when purchasing uranium, coal and biomass.
As an international company, Vattenfall is exposed to CSR risks through its operations and value chain that might harm the brand and image, as well as threaten its license to operate.
Vattenfall is under constant scrutiny and has a long history of being criticized by media and NGOs for its operations and its value chain that includes fuel suppliers from countries in different parts of the world. Being a Swedish state owned energy company with operations in northern Europe entails a great responsibility to act as an example for other companies. It also
3Carbon capture and storage (CCS) can support the transition to a low carbon energy system in the near future.
means that Vattenfall is under higher pressure from the owner and more demanding
expectations from stakeholder than other privately owned companies (Gyllenpalm, pers.com., 2010). This makes it very important to manage CSR risks as well as emerging CSR issues in a proactive way in order to prevent harm to the company.
At present, Vattenfall has no structured process in place for managing CSR issues connected to Vattenfall’s operations and value chain on group level. However, there are functions within Vattenfall that work with risks and issues management, but with other focus areas than CSR, i.e. human rights, labour, anti-corruption, and environment. The challenge for Vattenfall is to structure a process for CSR issues management that interacts with these other processes in a way that benefits all involved functions as well as the company at large. An important part of creating a CSR issues management at Vattenfall is to identify the company’s major CSR risks and potential CSR issues.
1.4. Purpose
It’s very important for Vattenfall to understand the different CSR risks related to its operations to be able to manage emerging CSR issues in a preventive way. The purpose of this study is to contribute to that knowledge and recommend a process for managing emerging CSR issues that might affect Vattenfall’s operations and/or reputation. To achieve this, the study will consist of two parts.
The first part will identify the main overall CSR risks connected to Vattenfall’s operations and thereby give an understanding for which kind of CSR issues Vattenfall might be exposed to. Since Vattenfall is a signatory member of the UN Global Compact and supports its ten principles in the areas of human rights, labour, anti-corruption and environment, these areas will constitute the framework for what is considered a CSR risk in this study. The first part of the study aims to answer the following question:
- Which are the main CSR risks and issues within the areas human rights, labour, anti- corruption and environment connected to Vattenfall’s operation?
The second part will suggest a process for a CSR issues management at Vattenfall that quickly and effectively manages emerging and ongoing CSR issues. This part of the study aims to answer the following questions:
- How might a process for CSR issues management at Vattenfall look like?
- Which functions within Vattenfall should be included and how should they interact with the CSR issues management process?
2. Conceptual framework
2.1. Stakeholder identification and engagement
The elements of CSR are based on the expectations from stakeholders and society, which makes CSR changeable over time (ISO/DIS 26000, 2010). When society and organizations change, so do the expectations. An early notion of CSR focused on philanthropic activities such as giving to charity. Issues such as labour practices and fair operating practices emerged a century or more ago. Other issues, such as human rights, environmental concerns, bribery and anti-corruption, and consumer protection, were added over time, as they received growing public concerns (ISO/DIS 26000, 2010). Therefore, identification of and engagement with stakeholders are fundamental processes for CSR. Through an open dialogue with identified stakeholders, a company can understand the impacts from its activities and the expectations from society, as illustrated in figure 1. Through that knowledge, it can address relevant issues of concern in their CSR work and manage CSR risks (ISO/DIS 26000, 2010).
Figure 1. Relationship between an organization, its stakeholders and society(ISO/DIS 26000, 2010:15).
Organizations, individuals and other parties that are directly or indirectly affected by a
company’s decisions and behaviour constitute stakeholders (ISO/DIS 26000, 2010). Examples of a company’s stakeholders are the owners, the employees, communities, customers etc. A company may not always be aware of all its stakeholders. In the stakeholder group, there are parties that should be included but that don’texist in an organized form or have someone that can speak for them. Examples of such groups are the environment, future generations and vulnerable groups such as children and illegal immigrants (ISO/DIS 26000, 2010). In these cases, it is very important to find a reliable spoke person/organization to represent them.
When the stakeholders have been identified, the next step is to engage with the stakeholders.
Stakeholder engagement means to actively include the stakeholder’s interests in the decision making process (ISO/DIS 26000, 2010). This is a big challenge since the interests of different stakeholders often vary significantly and sometimes even compete (ISO/DIS 26000, 2010).
In the stakeholder engagement process, stakeholder dialogue is an important part. Managing stakeholder relationships requires a mutual dialogue and truly engage stakeholders in the decision process of the company. The term engagement refers to listening to, and accounting
Society Stakeholders
Impacts of decicions and activities
interests expectations
Organization
for, the views of stakeholders, as well as involving them in the provision of solutions (Kytle, 2005). Figure 2 illustrates an increasing scale of managing stakeholders/relationships, as developed by the World Bank4.
Figure 2. Stakeholder Engagement Model (Kytle, 2005)
A stakeholder dialogue can take place in many different forms such as formal or informal initiatives taken by the company or the stakeholder, it might take place during workshops, conferences, individual meetings, public hearings, round-table discussions, advisory
committees, collective bargaining and web-based forums (ISO/DIS 26000, 2010). However, the fundamental principle is that it should be a two-way communication. To create an effective stakeholder engagement, it’s essential to only include stakeholders relevant for the company and its operations- it’s not possible to include all. It’s also important to engage stakeholders with different views; a company should not include stakeholders based on if their interests mirror the company’s interests since the dialogue then would lose its purpose
(ISO/DIS 26000, 2010).
For a multinational company, stakeholder dialogue is an effective means of understanding and identifying the risks associated with its activities on different markets, especially in the social and environmental areas, but also economically and politically (Kytle, 2005). It provides an opportunity to pick up signals of emerging issues and thereby give the company a chance to manage the risk and, in the best case, a measure to eliminate it. A continuous and integrated information flow between a company and its stakeholders can form a base of knowledge about CSR issues and risks and how they should be managed, and at the same time build valuable trust between the company and its stakeholders.
Stakeholders seek to hold organizations to a certain performance standard. Once it fails to achieve that level it is subject to criticism. Businesses need to be committed to know and achieve the level of CSR performance that is necessary to maintain the legitimacy of the organization (Heath and Palenchar, 2008). The legitimacy gap, as illustrated in figure 3,
4Based on RC Calow, BL Morris and AR Lawrence. 1999. Stakeholder Analysis and Consultation. The world
Low
Having an influence on decisions /Sharing intelligence
Knowledge about decisions /Public relations
Being heard before decisions High
Forming / Agreeing to decisions
Managing stakeholders
Managing stakeholder relationship / stakeholder engagement
results from differences between what a company is doing and what its stakeholders expect and prefer it to be doing. The gap represents how strongly the stakeholders approve or disapprove of a company and is usually a result of differences in fact, value and policy. To manage issues, a company must minimize this gap (Heath and Palenchar, 2008). Operating in mutual interest with stakeholders and with a commitment to achieve social responsibility is vital for a company that wants to operate with minimal external constraint. Issues
management is a means to achieve harmonization of the different interests of a company and its stakeholders.
Figure 3. The legitimacy gap (Heath and Palenchar, 2008).
2.1.1. How globalization has affected stakeholders
Globalization has created a new operating environment for business that is very different from national or local environments. This new operating environment is often unpredictable and requires an understanding of the dynamics of the global market, its players and the risks associated with it (ISO/DIS 26000, 2010). There is also a wider range of stakeholders that expresses different expectations, which all need to be handled by the company. In addition to this, the globalization has, together with greater ease of mobility and accessibility, and the availability of instant communications between individuals and organizations, made companies more exposed and vulnerable to criticism towards irresponsible activities connected to their operations and more exposed to criticism (ISO/DIS 26000, 2010).
Along with globalization of companies, a significant shift in market power has occurred (Kytle, 2005). In addition to an increased market power for customers and traditional investors, stakeholders such as communities, employees, regulators, politicians, suppliers, NGOs and media have gained much power through liberalized telecommunications markets, the Internet and formation of coalitions on a global level (Kytle, 2005). These empowered stakeholders have been given a position to challenge and put pressure on companies to change.
2.1.2. An organization’s sphere of influence
In addition to being responsible for its own organization, activities and decisions, a company often has the possibility and power to affect the behaviour of other organizations. When such situations occur, the organizations are under the company’s sphere of influence (ISO/DIS 26000, 2010). It’s then a part of the company’s corporate social responsibility to transfer its responsible behaviour and actions towards sustainable development to these organizations.
Organizations that are included in a company’s sphere of influence are often a part of the value chain; they often constitute suppliers, peer organizations, partners and formal and
Organizational Performance GAP Stakeholder’s expectations
Activities Policies
Standards of Corporate Responsibility
Bases of GAP:
Differences of fact Differences of value Differences of policy
informal associations in which the company participates (ISO/DIS 26000, 2010). A value chain comprises the full range of activities that are required to bring a product or service from its conception to end use and beyond (Kytle, 2005).
International companies often have complex value chains, which’s start and end points are very hard to identify and manage (Kytle, 2005). The value chains often stretch across multiple companies and wide geographic areas. Each of the actors in the value chain brings its own set of local stakeholders along with different expectations and interests. A dispute with any of them can cause significant consequences for the company (Kytle, 2005). In the parts of the value chain that is active in developing countries, new types of stakeholder issues and challenges occur. Weak regulatory frameworks and means of enforcement, as well as corruption and lack of social services, raise new kinds of CSR risks that need to be responsibly managed (Kytle, 2005).
2.2. Risks, crisis and issues
A risk is easiest described in the context of threats, vulnerabilities, and controls and countermeasures, as illustrated in figure 4 (Kytle, 2005). A risk arises if a company is vulnerable in an area where a threat exists and there are no effective controls and
countermeasures taken, which means there is a lack of risk management (Kytle, 2005). For a company active on the global market it is of great importance to have controls and
countermeasures on place to minimize the disruption, loss or damage to business operations, and shorten the recovery time from unwanted events that can be created from a risk.
Figure 4. Defining risk (Kytle, 2005).
This definition is supported by the general definition of a risk found in the Business Dictionary (Businessdictonary, 2010) which defines a risk as a “Probability or threat of a damage, injury, liability, loss, or other negative occurrence, caused by external or internal vulnerabilities, and which may be neutralized through pre-mediated action”.
Today, most companies have developed processes for handling traditional risks, such as political, economic and technological risks, on a routine basis (Kytle, 2005). This is not the case when it comes to CSR risks associated with globalization of companies and their value chain. These risks are rarely understood or managed in an effective way to minimize and prohibit harm to the company, its business operations and business relationships. CSR risks refer to, but are not limited by, human rights, labour practices, environmental impact and sustainability (Kytle, 2005).
With globalization comes greater vulnerability and thereby the importance of managing CSR risks. A CSR risk occurs when a stakeholder brings up a social issue area and pressures the company to change policies or approaches in the marketplace through exploiting
vulnerabilities. A CSR risk can have wide-ranging impacts on a company’s operations and activities, from sourcing to public relations. Different stakeholders are associated with different CSR risks areas. For example, employees may raise concerns about outsourcing of jobs, customers may request changes in a company’s environmental policies and civil society may pressure the company to take responsibility for the activities of their suppliers (Kytle, 2005). On the global arena a CSR risk might occur even though companies or its suppliers simply follow the local laws, since their behaviour may not be compliant with the company’s own self-proclaimed standards or break international norms and laws (Kytle, 2005). The expectations on global companies are often to help fill government gaps and compensate for governance failures. CSR risks may also occur from decisions that appear to make good business sense from an economic perspective (Kytle, 2005). One example of this is
outsourcing the production to countries where the labour is cheaper and taxes are lower. A decision that might end up harming the company’s reputation and image if the company decreases its environmental performance, doesn’t follow international labour practices, or decreases the technical quality of the product.
For a global company, CSR risks are equally important as technological, economic and political risks and should be included in the company’s strategic risk management. These risks are often likely to crosscut each other (figure 5), which mean that they should be addressed from multiple perspectives simultaneously (Kytle, 2005).
Figure 5. Perspective on risks (Kytle, 2005).
In this study, the definition used for a crisis is “A critical event or point of decision which, if not handled in an appropriate and timely manner (or if not handled at all), may turn into a disaster or catastrophe”(Businessdictionary, 2010).
Issues, crisis and risks interconnect with each other (Heath and Palenchar, 2008). A crisis is a manifested risk, but the relation can also be the reversed; a risk can develop from a crisis. An issue may result from both a risk and crisis. The issue becomes an interpretation of the risk or crisis that it resulted from and needs to be managed at an early stage before it affects the company in a greater sense. Figure 6 illustrates the relationship between an issue, a crisis and a risk, and their characteristics.
Political risk
Technical risk
Economic risk Social risk
‘
Figure 6. The relationship between issues, crisis and risks (Heath and Palenchar, 2008).
2.4. The link between CSR and risk management CSR is related to risk management through two means:
By providing intelligence for identifying risks and as a source of information about CSR risks
By offering effective means to respond to them.
The prerequisite for these means, and for an effective CSR performance, is managing stakeholder relationships (Kytle, 2005).
CSR risk management needs to be integrated with other forms of strategic risk management processes through internal and external risk sensing, reporting and monitoring practices.
Primarily, CSR issues should be handled and addressed by a company’s CSR department, but if the attention from the public, the civil society and media grows, the company’s attention to the issue must spread in the organization, and if necessary, the top management will be required to change business-operating policies (Heath and Palenchar, 2008).
Only through well-managed stakeholder dialogues and increased understanding for the international norms and standards with which the company is expected to comply, as well as the understanding of the stakeholder expectations, together with the linkage of CSR and a risk management process, CSR risks can be successfully managed (Heath and Palenchar, 2008).
2.3. The Global Scene 2.3.1. UN Global Compact
“The United Nations Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption”(United Nations Global Compact, 2010).
The UN Global Compact is a leadership initiative, requiring a commitment signed by the company’s chief executive, and endorsed by the highest-level governance body of the organization. In the context of this commitment, the signing members of the initiative are expected to (United Nations Global Compact, 2010):
Make the UN Global Compact and its principles an integral part of business strategy, day-to-day operations, and organizational culture
Issue
Substance, interests and positions
Crisis
Predictable events but unpredictable timing
And consequences
Risk
Predictable consequences and unpredictable magnitude and victim
Incorporate the UN Global Compact and its principles in the decision-making processes of the highest-level governance body (i.e. board)
Engage in partnerships to advance broader development objectives, such as the Millennium Development Goals
Integrate in its annual report or in a similar public document, such as a sustainability report a description of the ways in which it implements the principles and supports broader development objectives
Advance the UN Global Compact and the case for responsible business practices through advocacy and active outreach to peers, partners, clients, consumers and the public at large.
2.3.2. OECD- Organisation for economic co-operation and development
The mission of the OECD is to bring together the governments of countries committed to democracy and the market economy from around the world to (Regeringskansliet, 2010):
Support sustainable economic growth
Boost employment
Raise living standards
Maintain financial stability
Assist other countries' economic development
Contribute to growth in world trade
The organisation provides a setting where governments compare policy experiences, seek answers to common problems, identify good practice and coordinate domestic and
international policies. The Swedish government expects all Swedish companies to follow the guiding principles of the OECD for Multinational Corporation, which in short contains (Regeringskansliet, 2010):
Generally: Respect human rights, contribute to sustainable development and support further education of the employees.
Information: Communicate good information on your operations and your products and services, financial as well as other
Employees: Respect the right of the employees (the right to join trade unions, collective bargain etc.), collaborate with the representatives of the employees and counteract child labour. Inform and relieve negative consequences of
discontinuations.
Environment: Strive for continuous improvement. Protect the environment, health and safety through means such as environmental management systems and the principle of caution. Develop and offer products and services without unnecessary environmental effect.
Corruption: Don’tgive bribes, support transparency and the employees awareness on the company’s corruption and bribery policy
Consumer interests: Provide your consumers with all relevant information on your products and establish routines for solving consumer disputes.
Science and techniques: Strive to transfer technique and knowledge to the host country.
Competition: Do not collaborate with competitors in a way that limits competition.
2.3.3. PACI - Partnering Against Corruption Initiative
The World Economic Forum Partnering Against Corruption Initiative (PACI) was formally launched by CEOs from the Engineering & Construction, Energy and Metals and Mining industries in January 2004 in an effort to combat global corruption (World Economic Forum, 2010). Today, PACI is a multi-sectoral initiative with signatories beyond the three originating sectors and fully inclusive, meaning that all companies are invited to join PACI regardless of their size, sector or country of origin. The PACI is based on CEO commitment to zero- tolerance towards bribery and commitment to implement a practical and effective anti- corruption program within the company (World Economic Forum, 2010).
PACI is a multi-stakeholder initiative that works with a number of organizations including:
The United Nations Global Compact (GC)
The International Chamber of Commerce (ICC)
The Organisation for Economic Co-operation and Development (OECD)
Transparency International (TI).
The Multilateral Development Banks and selected International Financial Institutions.
The Basel Institute on Governance
145 companies have committed to strengthening efforts to counter corruption and bribery through PACI and have signed a statement supporting the PACI Principles for Countering Bribery (World Economic Forum, 2010). These Principles call for a commitment to two fundamental actions:
- A zero-tolerance policy towards bribery
- Development of a practical and effective implementation programme In practical terms, this will mean either implementing anti-bribery practices based on the PACI Principles or, for companies with established programmes, using the PACI Principles to benchmark existing practice. The aim of the PACI Principles is to provide a framework for good business practices and risk management strategies for countering bribery (World Economic Forum, 2010).
3. Method and Material
The CSR risk identification part of this study will focus on CSR risks related to fuels and to the geographical markets where Vattenfall is active. Vattenfall’s fuels include uranium, coal and biomass. Each of these fuels, as well as the countries where Vattenfall has operations, are connected to risks within the areas addressed by the UN Global Compact, i.e. human rights, labour, anti-corruption and environment. The method used for identifying CSR risks was a qualitative case study, where empiric data were collected through interviews with experts within Vattenfall as well as desktop research.
In the fuel part of the study, the focus has been on identifying the CSR risks related to the different energy fuels used by Vattenfall. For each fuel, the following CSR topics are addressed:
Human rights / workers right
Health and safety
Environment
In the geographical part of the study, the CSR risks related to the geographical areas that are represented by Vattenfall’s four business groups; Nordic, Benelux, Central Europe and the cross-functional business group Pan Europe, are identified. The following CSR topics are addressed:
Human rights
Labour practices
Environment
Anti-corruption
To achieve a realistic and effective recommendation for a CSR issues management function at Vattenfall, the study includes a benchmarking of how other companies have structured their CSR issues management and a mapping of the different functions at Vattenfall that already perform some kind of issues or risk management. The benchmarking was conducted through interviews and desktop research. The mapping of relevant functions within Vattenfall was conducted through interviews with the responsible managers and with information published on Vattenfall’s internal web pages.
The purpose of the benchmark is to provide the study with information on how other companies have structured their process for CSR issues management and use their
experiences when recommending a process for CSR issues management at Vattenfall. The building and construction company Skanska and the Dutch energy company Nuon were chosen for the benchmark. They are both technically advanced companies with similar characteristics as Vattenfall. Skanska was chosen because it, like Vattenfall, is a Swedish international company that is under constant attention from media and NGOs. Nuon, which is a former Dutch state own energy company, was chosen due to the fact that it was acquired by Vattenfall during 2009 and now is a part of the Vattenfall organization.
3.1. Global commitments by Vattenfall
As a large international company, Vattenfall is responsible for following certain rules, principles and commitments, both on a legal and voluntary basis.
3.1.1. UN Global Compact
Vattenfall is a signing member of the UN Global Compact and has committed to act according to the ten principles as described in the Initiative. The Initiative covers all CSR risks highlighted in this study and more within the areas of human rights, labour, environment and anti-corruption. However, it’s not a legally binding commitment, which means that there are no legal consequences of non-compliance. But if a company violates the principles, it risks losing the membership and be “thrown out”from the initiative. This is, of course, a prestige and reputational risk for the member companies. Therefore, it is important for Vattenfall to ensure acting in line with these principles throughout the entire organization as well as the value chain.
3.1.2. OECD- Partnering Against Corruption Initiative
There is a risk of consequences for companies that don’tfollow the guiding principles of the OECD for Multinational Corporation principles. This happened to Vattenfall during 2009, when Greenpeace accused Vattenfall’s operations in Germany for violating the principles.
The accusations proposed to the OECD didn’tgo through due to lack of evidence. However, they did accomplish some media attention, which is harmful for the Vattenfall brand and image. This case shows the importance of securing that Vattenfall’s organization doesn’t violate the guiding principles of the OECD for Multinational Corporation.
3.1.3. PACI - Partnering Against Corruption Initiative
Since Vattenfall, through PACI, is committed to strengthening efforts to counter corruption and bribery, Vattenfall has a zero-tolerance policy towards bribery. This means that no Vattenfall employee is allowed to act in the grey zone of what is considered as a bribe.
However, it is a difficult balance between a bribe and common business relation practices.
The recommendation from Vattenfall to its employees is to consult with their manager in case of uncertainty.
3.2. CSR topics
As earlier stated, the CSR topics addressed in this study are based on the four areas human rights, labour, environment and anti-corruption, which constitute the base of the UN Global Compact.
3.2.1. Human rights
The Universal Declaration of Human Rights was adopted by the UN General Assembly 1948.
The aim of the Declaration was to set basic minimum international standards for the protection of the rights and freedoms of the individual (United Nations Global Compact, 2010). Today, the principles of the declaration are considered to be international customary law and do not require signature or ratification by the state to be recognised as a legal
standard. It is the most widely recognized human rights instrument and it constitutes the base for the UN Global Compact’s two principles for human rights, which are:
Businesses should support and respect the protection of internationally proclaimed human rights
Businesses should make sure that they are not complicit in human rights abuses Even though laws and regulations exist in most countries, human rights may be violated when laws and regulations are not enforced. Companies have a responsibility to respect human rights, regardless of whether the state is unable or unwilling to do so. It is not acceptable for companies to passively accept or participate in human rights violations (United Nations Global Compact, 2010). They need to actively prevent human rights violations within their operations and their sphere of influence by following international law such as the
International Conventions on Human Rights and the ILO conventions, as well as voluntary guidelines such as the UN Global Compact and the OECD guidelines.
There are certain circumstances and environments where companies are more likely to face human rights challenges. These include (United Nations Global Compact, 2010):
Conflict or extreme political instability, failures of the democratic or judicial system, absence of political and other civil rights
Poverty, drought, extreme health challenges or natural disasters
Involvement in extractive activities or other activities that might significantly affect natural resources such as water, forests or the atmosphere or disrupt communities
Proximity of operations to communities of indigenous peoples activities that can affect or involve children
A culture of corruption
Complex value chains that involve work performed on an informal basis without legal protection
A need for extensive measures to ensure security of premises or other assets.
Most global companies are, through their operations and value chain active on markets where several of these factors occur. This makes it crucial to address human rights issues through the organization and its sphere of influence.
3.2.2. Labour practices
The ILO Declaration on Fundamental Principles and Rights at Work (1998) constitutes the base for the UN Global Compact’s four principles for labour practices (United Nations Global Compact, 2010):
Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
The elimination of all forms of forced and compulsory labour;
The effective abolition of child labour; and
The elimination of discrimination in respect of employment and occupation.
The labour practices of a company encompass all policies and practices relating to work performed within, by or on behalf of the company.
3.2.3. Environment
The UN Global Compact’s environment principles are derived from the Rio Declaration on Environment and Development (United Nations Global Compact, 2010):
Business should support a precautionary approach to environmental challenges
Business should undertake initiatives to promote greater environmental responsibility
Business should encourage the development and diffusion of environmentally friendly technologies
The purpose of these principles is to provide an entry point for business to address the key environmental challenges set by the UN, these are (United Nations Global Compact, 2010):
Loss of biodiversity and long-term damage to ecosystems
Pollution of the atmosphere and the consequences of climate change
Damage to aquatic ecosystems
Land degradation
The impacts of chemicals use and disposal
Waste production
Depletion of non-renewable resources
Businesses on different geographical markets operate under different environmental
conditions when it comes to legislation and environmental governance. In many developing countries, the environmental governance is poor and often doesn’thave a transparent and good working system of well-functioning environmental institutions, policies, and programs.
In these countries, lack of environmental knowledge and resources to achieve good environmental standards are also common problems. These factors make it important for
companies operating on these markets to have a high environmental performance. If
organizations in the company’s sphere of influence are active in such markets it is important to secure that they also have a high environmental performance, the minimum standard should be following the law.
3.1.4. Anti-corruption
The UN Global Compacts tenth principle addresses anti-corruption (United Nations Global Compact, 2010):
Businesses should work against corruption in all its forms, including extortion and bribery.
Corruption is now recognized as one of the world's greatest challenges and it represents a major obstacle in the work towards sustainable development. It has a large negative impact on both the society and the private sector. It impedes economic growth, hinder fair competition and represents legal and reputational risks. It also costs a lot of money for companies doing business in regions where corruption is common; the estimated extra cost added is 10% or more for companies. The World Bank has stated that bribery has become a $1 trillion industry.
3.3. Corporate Social Responsibility at Vattenfall
In its annual CSR report Vattenfall communicates its view on CSR and its contribution to sustainable development. As an energy company, Vattenfall has a great responsibility towards society to provide secure energy supply produced with as little environmental and social impact as possible. The criteria for acceptable impact from energy generation and supply must be set in dialogue with society, within a framework defined by regulation and market
mechanisms. Therefore, Vattenfall is engaged in a continuous and open dialogue with its stakeholders regarding their expectations and needs in relation to Vattenfall’s activities.
Vattenfall is committed to meet the society’s need for energy in a responsible and sustainable manner.
Vattenfall has developed five strategic ambitions, which it acts upon to ensure long-term value creation. The ambition for these strategic ambitions is that they should be taken into account in all business activities and decisions and constitute the base for Vattenfall’s work related to CSR and contribution to sustainable development (Vattenfall, 2010).
Number One for the Customer
Number One for the Environment
Profitable Growth
Benchmark for the Industry
Employer of Choice
At Vattenfall, the Board of Executives is ultimately responsible for Vattenfall’s CSR
performance. Group Function Communication coordinates Group level communication with certain stakeholder groups such as politicians and global NGO’s –local communication is done locally. The CSR Manager’s role is to coordinate CSR communication at Group level and support the development of CSR issues (Gyllenpalm, pers.com., 2010).
Vattenfall’s view on how to integrate social responsibility in the organization and thereby contribute to sustainable development is in line with the view of ISO 26000 (Gyllenpalm, pers. com., 2010). This means applying the basic principles and the core subjects of social
responsibility, and take practical actions to integrate CSR in the organization, see illustration in figure 7.
Figure 7. Schematic overview of integrating social responsibility in the organization (ISO/DIS 26000, 2010).
Seven principles of social responsibility Accountability Transparency Ethical behaviour
Respect for stakeholder interests
Respect for the rule of law
Respect for international norms of behaviour
Respect for human rights
Recognizing CSR Stakeholder identification and engagement
CSR core subjects
The Environment Fair operating practices
Consumer issues
Community involvement and development Human rights
Labour practices
Practices for integrating Social responsibility throughout the organization Voluntary initiatives
for CSR
Communication on CSR
Enhancing credibility regarding CSR
Reviewing and improving actions and peactices related to CSR Understanding the social
responsibility of the organization
The relationship of the organization’s characteristics to CSR
S u s t a i n a b l e d e v e l o p m e n t Related actions and expectations
Organizational governance Two fundamental principles of CSR
3.4. Mapping of functions at Vattenfall that manage risks and issues 3.4.1. ERM- Enterprise risk management at Vattenfall
The business environment that Vattenfall operates in is complex and uncertain, which makes risk management crucial for business. The risk management process at Vattenfall secures that risks that could pose a threat to Vattenfall’s goals are identified and handled (figure 8). The main purpose of ERM is to support the Executive Group Management, EGM, and the Board of Directors and ensure a long-term sustainable corporate development by (Hagland, E., pers.
com. 2010):
Providing support to decision-makers in managing risks and opportunities
Correct and sufficient risk control
Figure 8. Identification of risks (Hagland, pers. com., 2010).
ERM offers a common method for risk management within Vattenfall that provides the management with information to support decisions and to create risk awareness. It offers a process for identifying, evaluating, managing, and following up, reporting and controlling risks in a transparent way (Hagland, pers. com., 2010). The identification and assessment of risks are performed through workshops and interviews with employees and managers in each business unit. ERM also provides the possibility to aggregate risk exposures into numbers.
However, each business unit is responsible for their own risks (Hagland, pers. com., 2010).
The risks that are identified are connected to the following risk fields:
Technology
Infrastructure
Politics and Society
Law and Regulation
Personnel and Organisation
Market and Financial
Vattenfall has identified Nuclear power safety and Environment as high priority focus areas.
To ensure responsible risk management within these areas, the Head of Environmental Affairs and the Chief Nuclear Officer have been appointed, with help from specific committees, as responsible for these matters on Group level.
Political influences
Social trends Governing authorities
Changing market
Financial challenges
Operational performance
New technology Stricter laws
IT-infrastructure
Corporate culture Business processes
Safety Security
Environmental demands
Uncertainty*
Uncertainty*
Positive outcome of an event
Negative outcome of an event
OPPORTUNITY !
RISK !
*According to the COSO, ERM Framework chosen by Vattenfall
Market prices
Each quarter, ERM provides Executive Group Management (EGM) with an enterprise risk management report that communicates new risk area, the status for old risks, and a calculated risk value for each risk and for the aggregated risk position. The aggregated risk position value is based on reporting units in the relevant substructures taking into account the risk quantifications done by the respective experts (Hagland, pers. com., 2010).
For each risk the ERM report communicates the following:
Business unit, risk name, risk field
Risk value, trend and percentage of Business Unit EBIT (Earnings Before Interest and Taxes)
Description of the risk
Responsible person appointed
Planned action
Reporting responsible
The report makes it possible for EGM to follow up identified risks, trends and the actions taken to prevent them.
3.4.2. ICM- Incidents & Crisis Management
The objective of Vattenfall’s Incident and Crisis Management function is to strengthen the company’s ability to handle incidents and crisis (Hörndahl, pers. com., 2010). Their cross- functional structure enhance the preparedness and provide effective and proactive ways of handling events that might lead to incidents and crisis that have an impact on Vattenfall’s daily business operations.
The ICM function provides the Vattenfall Group with a governance capability to handle incidents before they happen and, if they occur, prevent them from escalating into a crisis.
The ICM function is supposed to act before, under and after an incident or crisis occur (Hörndahl, pers. com., 2010).
ICM has the overall responsibility for the capability of the incident and crisis management throughout the Vattenfall Group. The operational handling of a specific incident will always be the responsibility of the affected business unit. ICM supports their efforts before, during and after an incident or a crisis. ICM enable proactivity. This calls for proactive measures in the daily life of Vattenfall, well before an incident occurs.
The organisation is active and on constant alert night and day, seven days a week.
All reports of incidents go to a central ICM unit on Group level.
The ICM unit consists of Vattenfall experts in crisis management and communications.
The ICM unit always has access to a member of the Vattenfall top management who is
“Director on Duty”.
The ICM team together with reporting responsible for each business group have shorter reporting meetings every morning. On Mondays they have a longer and more extensive reporting meeting where last weeks events and events for the coming week are discussed.
ICM performes training for incidents and crisis within different parts of the organisation.
